Asked by Norma Ocampo on Jul 22, 2024
Verified
A shift in the sales mix from products with high contribution margin ratios toward products with low contribution margin ratios will raise the break-even point for the company as a whole.
Contribution Margin Ratios
The ratio of contribution margin (sales minus variable costs) to sales revenue, indicating the percentage of sales revenue that exceeds variable costs.
Break-even Point
The production level at which total revenues equal total expenses, resulting in no profit or loss.
- Comprehend the significance and influence of sales mix on overall earnings and points of break-even.
- Analyze the impact of variations in sales composition on the break-even point and earnings.
Verified Answer
JN
Jordan NorthupJul 26, 2024
Final Answer :
True
Explanation :
The contribution margin ratio measures the amount of contribution margin earned per unit of sales. Products with high contribution margin ratios contribute more towards covering fixed costs and thus, lowering the break-even point. Conversely, products with low contribution margin ratios contribute less towards covering fixed costs and thus, raising the break-even point. Therefore, a shift towards products with low contribution margin ratios will raise the break-even point for the company as a whole.
Learning Objectives
- Comprehend the significance and influence of sales mix on overall earnings and points of break-even.
- Analyze the impact of variations in sales composition on the break-even point and earnings.